ECB chief: low interest rates don't make inequality worse

FRANKFURT, Germany (AP) — The head of the European Central Bank is defending the bank's monetary stimulus programs and record-low interest rates against concerns that they hurt savers and favor the wealthy.

Mario Draghi said in a speech in Berlin on Tuesday that low rates are a symptom of weak investment and excess savings, which central banks must take into account. He said low rates support consumption and jobs — benefits that are "always socially progressive."

He said that, overall, "a faster return to full employment should in turn contribute to lower future inequality."

The ECB has cut its benchmark interest rate to zero, and pushed down longer-term rates through a bond-buying program. The steps have frustrated savers who see low returns on conservative investments, while boosting stocks and other assets that are often held by wealthier people.

Significantly, Draghi chose to speak in Germany, where the ECB's stimulus efforts have come under strong criticism by some economists and legislators who say such measures hurt savers and are increasingly ineffective. The bank faces a politically fraught decision on whether to extend its bond purchase stimulus program at its next meeting Dec. 8.

The ECB has been buying 80 billion euros ($88 billion) a month in government and corporate bonds with newly printed money. That drives down market interest rates and pumps new money into the financial system. The program is slated to run at least through March, 2017. But now the bank must decide whether to extend it beyond then, and if so, how long. To avoid running out of bonds, the ECB's governing council, led by Draghi, might have to ease some of the restrictions on which bonds it can buy.

One of those rules requires the bank to purchase government bonds according to each country's share of the eurozone economy. Easing that rule to find more bonds could run into charges of political favoritism and face opposition from stimulus skeptics on the council.

During his speech, Draghi reviewed the effects of low rates and loose monetary policy on different aspects of the economy — on jobs, stock and bond prices, home prices, and borrowing costs for ordinary people. He concluded that many of the effects balanced each other out when it comes to economic inequality.

For instance, low rates may have boosted stock prices, benefiting a smaller slice of the population, while at the same time helping housing prices recover. Higher house prices benefit a broader segment, contributing to less inequality.

He said that "certainly, some savers might suffer from a temporary period of low interest rates, especially if they rely on interest income...But whatever financial assets savers hold, in the final analysis their return always depends on the growth rate of the economy."

The ECB is the chief monetary authority for the 19 countries that use the euro currency.